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Think tank warns of high UK base rates

The Policy Exchange think tank, one of the better known economic think tanks in the UK, has today issued a very disturbing and potentially frightening report on the UK economy. The think tank believes that UK base rates will ultimately rise to 8% although this will happen only after the UK economy has been dragged through a double dip recession.

There is a growing belief that the UK and US governments will react to the forecast economic downturn by printing more and more money which will potentially feed the monster which is inflation. The Policy Exchange think tank in particular believes that a dramatic falloff in the UK economy would eventually lead to a spectacular boom period and the need to increase base rates fairly quickly to kill the potential threat of inflation.

This is the first time that any renowned think tank has come forward with a suggestion of a double dip recession followed by a spectacular boom period. If this particular forecast does turn out to be true then the next few years will be a minefield for the UK government and the Bank of England. However, if handled correctly, and assuming the boom times do return, then David Cameron could in theory manipulate the boom time to correspond with the next general election. Now that would be a feat in itself!

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